Housing market reaches new lows as officials demur
Today’s housing market isn’t so bad if you’re independently wealthy. For the rest of us, it can be best described in Biblical terms: “In that place there will be weeping and gnashing of teeth,” reads Matthew 25:30.
News outlets have regularly covered the housing market’s sad state for years, and thanks to a unique set of factors, the market keeps reaching new lows. “Today’s housing market is a toxic mix of high mortgage rates, high prices, tight supply and strangely strong pent-up demand — and it’s scaring off buyers and sellers alike,” reports CNBC.
This particular witches’ brew began afflicting the housing market under President Joe Biden, and it has become one of his administration’s enduring hallmarks. Sadly for homebuyers and sellers, until officials get serious, you can expect more disappointing news.
The average mortgage rate recently reached 8 percent, which is the highest in decades. This is a direct result of the Federal Reserve attempting to tame inflation by increasing its benchmark interest rate to a 22-year high. In a healthier market, this wouldn’t necessarily spell doom for buyers.
“Usually when rates go up, home prices go down,” reports CNBC. “But this market is unlike historical ones because it also has a severe lack of supply.” Many current homeowners refuse to list their homes for sale because they are locked into low interest rates. Meanwhile, average home prices are much higher than they were during the pandemic when increased demand caused the market to turn red hot.
This has taken a toll on Americans—especially first-time homebuyers. Real estate website Redfin recently reported, “A homebuyer must earn $114,627 to afford the median-priced U.S. home.” That’s around $40,000 more than the average household earns. Unsurprisingly, home sales in September dropped to a 13-year low.
Now renting appears to be a far more attractive financial decision for many. The average new monthly mortgage payment is about 52 percent more than the cost to rent an apartment, which places the housing market in unprecedented territory. “The last time the measure looked out of whack was before the 2008 housing crash. Even then, the premium peaked at 33% in the second quarter of 2006,” the Wall Street Journal wrote.
The Biden administration has attempted to ameliorate the situation, but their proposed solutions have been underwhelming. Last February, Biden and company announced a plan to levy surcharges on new homebuyers with large down payments and high credit scores.
This could cost each homeowner tens of thousands of dollars over the life of their mortgage, and that money would then be used to subsidize mortgages for those with subpar credit scores. Essentially this encourages higher risk individuals to purchase homes, while discouraging—or at least punishing—those with better credit histories.
If that idea wasn’t bad enough, this month the Biden administration called for “a $10 billion down payment assistance program that would ensure first-time homebuyers whose parents do not own a home can access homeownership alongside a $100 million down payment assistance pilot to expand homeownership opportunities for first-generation and/or low wealth first-time homebuyers.”
Artificially injecting more money into an economy struggling with inflation is hardly prudent—especially when our national debt is over $33 trillion and counting. While there is no magic bullet to restore a healthy balance in the housing market, there are some discrete steps that the government can take—namely it ought to get out of the way.
As the Wall Street Journal pointed out, “The slowing housing market is one of the most direct results of the Federal Reserve’s efforts to curb inflation and cool the economy by raising its benchmark interest rate.” What’s more, there’s uncertainty over what the Federal Reserve will do with interest rates next. If the Fed wants to make housing more affordable, it should more clearly signal its intentions and work to lower its rate, which will bring mortgage rates down almost immediately.
Beyond this, local, state and federal governments need to focus on spurring new home construction to meet demand. Rather than subsidizing the industry, they can start by reducing red tape, burdensome regulations and building moratoriums. This won’t have an instantaneous effect, but it could pay dividends for years to come.
Earlier this year, the Georgia General Assembly balked at bills that would have worked toward this end—including HB 514 from Rep. Dale Washburn, R-Macon—although they will still be available for consideration in 2024. Meanwhile, the federal government seems unlikely to drastically change its course on interest hikes, barring a major economic collapse. It appears that many officials are pleased to embrace a depressed, unhealthy housing market and weeping and gnashing of teeth.